CHAPTER 1 OVERVIEW

The Pre-Budget Report is now an established and integral part of the Government's annual Budget process. It provides a progress report on what the Government has achieved so far and the next stage of policy reforms on which the Government will be consulting in the run up to the next Budget.

The key objective of the Pre-Budget Report is to launch a national debate on important economic issues, including taxation and spending, seeking the views of people and business in all regions of the country and all sectors of the economy to inform the Government's Budget decisions.

The publication of this Pre-Budget Report, Building long-term prosperity for all, and a range of associated documents, will be followed by a series of regional meetings to discuss the issues raised and to listen to people's views.

INTRODUCTION

1.1 The Government's central economic objective, set out in 1997, is high and stable levels of growth and employment. Its aim is to fulfil Britain's national economic potential, building a stronger economy and a fairer society in which everyone can contribute to and share in rising prosperity and a better quality of life.

1.2 Over the past three and a half years, the Government has taken the tough decisions necessary to secure a platform of stability. Through extensive reforms and a prudent approach to both monetary and fiscal policy, economic stability is now being delivered. The challenge in the period ahead is to remain focused on the long term and avoid the mistakes of past decades where short-termism in decision making was a major cause of economic instability.

1.3 Locking in stability provides the opportunity to raise Britain's productivity performance and deliver stronger sustained growth in output and employment with low and stable levels of inflation and interest rates. The Government believes that workforces and management also have a key role to play in meeting the challenge of achieving a high productivity economy and that working together it is possible to build a stronger and fairer Britain with rising long-term prosperity for all.

1.4 The key elements of the Government's economic strategy, as set out in this Pre-Budget Report, are:

delivering macroeconomic stability (Chapter 2);
meeting the productivity challenge (Chapter 3);
increasing employment opportunity for all (Chapter 4);
ensuring fairness for families and communities (Chapter 5); and
protecting the environment (Chapter 6).

1.5 The following section describes the comprehensive strategy which the Government is pursuing to meet its objectives. Each element of the strategy forms the basis of the subsequent chapters of this report, with an overview of each in the second part of this chapter. Full details of the Government's updated forecasts for the economy and the public finances are set out in Annexes A and B respectively.

1.6 The Pre-Budget Report discusses the economic challenges now facing Britain, and outlines further measures which the Government is considering to boost productivity performance and deliver higher prosperity. The Government wants the Pre-Budget Report to be followed by a national debate on these major economic issues. It wants to hear the views of others and will be consulting widely over the coming months in the run up to Budget 2001.

Box 1.1: Meeting the Government's long-term economic goals

In working to deliver its central economic objective of high and stable levels of growth and employment, the Government has set five key long-term economic goals:

raising productivity: that over the next decade, Britain will have a faster rise in productivity than its main competitors as it closes the productivity gap;
increasing employment opportunity for all: that by the end of the decade, there will be a higher percentage of people in employment than ever before;
providing educational opportunity for all: that by the end of the decade, and for the first time, the majority of the UK's young people can expect to go on from school or college into higher education;
abolishing child poverty: that by the end of the decade, child poverty will be halved as the Government moves forward with its commitment to abolish child poverty within 20 years; and
delivering strong and dependable public services: with sustainable increases in spending on the Government's priorities of education, health, transport and tackling crime.

THE GOVERNMENT'S ECONOMIC STRATEGY

1.7 At the heart of the Government's economic strategy is the goal of full employment and rising prosperity for all. The Government's aim is to achieve sustainable growth in Britain's economic prosperity - ensuring that a strong economy goes hand in hand with a fair society and steps to protect and, where possible, improve the environment.

Delivering macroeconomic stability

1.8 Economic history clearly demonstrates that stability is an essential platform for achieving high and stable levels of growth and employment. Past instability in output, inflation and interest rates - as seen in the British economy over the past 30 years - created uncertainty and led to short-termism in the savings and investment decisions of individuals and businesses alike.

1.9 Much of the economic instability seen in the UK in recent decades reflects policy errors by successive governments, themselves often the fault of weaknesses in the policy framework. Since 1997, the Government has therefore put in place a new open and transparent macroeconomic policy framework with well-defined policy objectives and clear and accountable divisions of responsibility. Ensuring a foundation of domestic stability is particularly important in what is an increasingly integrated but volatile and uncertain global economy.

1.10 The economy which the Government inherited in 1997 was characterised by emerging inflationary pressures and a large structural deficit in the public finances. But through pre-emptive action and tough decisions under the new fiscal and monetary policy frameworks, a return to the stop-go cycle of the past was avoided and steady and stable growth is now being accompanied by record levels of employment, historically low inflation and a sound fiscal position. This has enabled the Government to raise investment in Britain's key public services on a sustainable basis in the 2000 Spending Review.

1.11 The challenge moving forward is to lock in this stability for the long term and to take advantage of the opportunity which it offers to secure sustainable increases in growth, employment and higher living standards.

Raising Britain's growth potential

1.12 Macroeconomic stability is a necessary condition for raising Britain's long-term growth potential, but it alone is not sufficient. That is why the Government is pursuing a long-term strategy to increase the trend rate of growth of the UK economy, focusing on removing barriers to productivity and employment.

1.13 The mid-point of the ranges for the Government's growth forecasts is based on a trend growth assumption of 21/2 per cent a year - the Government's neutral assessment of the economy's medium-term growth potential. The upper ends of the forecast ranges illustrate the potential for stronger non-inflationary growth over the medium term. The Government has set a Public Service Agreement target to raise the trend rate of growth over the next four years.

1.14 The Government believes that this is an achievable target given the measures it has already put in place and the next stage of reforms it is planning. However, the projections of the public finances continue to be based - as they will be for Budget 2001 - on the low end of the forecast ranges, consistent with the deliberately cautious assumption of 21/4 per cent a year trend growth. Changing the trend growth assumption underlying the fiscal projections before there is firm evidence of an improvement in long-term growth prospects would be imprudent and risk repeating the mistakes of the past. Previous governments too readily concluded that the economy's long-term growth potential had increased and therefore mistook a cyclical improvement in the public finances for a structural one.

Meeting the productivity challenge

1.15 Productivity is the main driver of economic growth. Meeting the Government's long-term ambition of raising Britain's productivity performance and closing the productivity gap with other major countries will therefore be essential in increasing the economy's trend rate of growth. A lack of domestic competition, insufficient incentives and opportunities for enterprise and innovation, poor skills and a history of under-investment are some of the key causes which the Government has identified for Britain's poor productivity record and the Government's strategy to increase productivity, described in Chapter 3, addresses each of these issues.

1.16 To succeed in meeting this productivity challenge requires a shared effort on the part of the Government, management, workers and trades unions. The Government has its role to play. But in a dynamic and increasingly competitive economy, individual businesses and sectors of the economy need to remain flexible and able to respond quickly to changing economic circumstances. Firms and industries which fail to learn from best practice elsewhere, do not invest in new technology and strong management, and which allow shortfalls in skills and training to persist will find it increasingly difficult to survive and expand.

Increasing employment opportunity for all

1.17 As well as by increasing productivity, the economy's trend rate of growth can be increased by achieving increasing levels of labour market participation. The Government's employment ambition is to deliver high and stable levels of employment, taking account of the economic cycle, so that at least three quarters of the working age population are in work by the end of the decade. Research also shows that work provides the best route out of poverty and therefore has an important role to play in building a fairer and more inclusive society. The Government's strategy for increasing employment opportunity for all who can work, set out in Chapter 4, matches rights with responsibilities. It comprises helping people move from welfare to work, easing the transition into work and making work pay. Once in work, the Government wants to ensure that people can work their way up into higher skilled, higher paid jobs.

Fairness for families and communities

1.18 At the same time as creating a strong and productive economy, the Government is working to build a fairer and more inclusive society in which everyone can contribute to and benefit from rising economic prosperity. A strong economy and a fair society both matter for a country's standard of living. Chapter 5 explains how the Government is delivering fairness for families and communities. The Government is pursuing an extensive programme to tackle poverty, particularly child and pensioner poverty, deliver strong and dependable public services, reward saving and strengthen community life. This does not just involve government action, but is often about bringing the private sector, voluntary and community groups, and the public sector together to find the best solutions to community problems.

Protecting the environment

1.19 Just as the economy cannot be thought of in isolation from wider social issues, nor can economic developments be allowed to proceed in a way which ignores the implications for the physical environment. The Government is committed to protecting and, where possible, improving the environment - both for the current generation and future ones. Too often in the past, economic growth has taken place at the expense of clean air, the efficient use of natural resources and sufficient consideration of the impact on the places in which people live and work. The Government has therefore developed an environmental strategy - explained in Chapter 6 - aimed at tackling climate change, improving air quality, regenerating towns and cities and protecting the countryside.

Conclusion

1.20 The Government has put in place a comprehensive strategy to deliver rising prosperity, with enterprise and employment open to all in every region of Britain. As a result of taking the necessary tough decisions, economic stability is being delivered. Now is the time to remain focused on the long term, maintaining fiscal and monetary discipline and avoiding quick fixes to short-term difficulties which would put at risk the gains made to date and the prospect of higher growth and employment in the future. The Pre-Budget Report describes how - with the Government, workforces, managers, trades unions and investors all working together - it is possible to remove long-standing barriers to productivity and employment and build long-term prosperity for all. It outlines the next stage of reforms which the Government is considering and consulting on in the run up to Budget 2001.

DELIVERING MACROECONOMIC STABILITY

1.21 Chapter 2 sets out the macroeconomic policy framework which the Government has put in place and shows how it is working to deliver economic stability. It also summarises the Government's updated projections for the UK economy and the public finances (which are set out in full in Annexes A and B).

The policy framework

1.22 The Government has put in place new frameworks for monetary and fiscal policy, based on the principles of transparency, responsibility and accountability, to deliver economic stability for the long term. The monetary policy framework with monetary independence for the Bank of England is designed to deliver low and stable inflation, while the fiscal policy framework underpinned by two strict fiscal rules is designed to deliver sound public finances. Integrated into the fiscal framework, a new public spending framework provides greater certainty for long-term planning and a greater focus on the outcomes which will be delivered.

1.23 Under these new policy frameworks, the Government is now delivering a strong and stable economy. Output growth has remained stable and positive, inflation has remained close to the Government's 21/2 per cent target and interest rates have been lower and more stable than in the past. At the same time, the public finances have been restored to a healthy and sustainable position.

1.24 Budget 2000 set out firm overall spending totals for the next three years, allowing for current spending to rise by 21/2 per cent a year in real terms and a more than doubling of net investment by 2003-04. It ensured that the Government remained on track to meet its fiscal rules over the economic cycle.

1.25 The 2000 Spending Review, which reported in July, set out detailed spending plans for the next three years consistent with the firm spending envelope set in Budget 2000. Within these limits, as a result of savings on debt interest payments and social security spending, the Government was able to provide a substantial and sustainable increase in resources for priority public services including education, health and transport over the next three years while ensuring that the fiscal stance was on track to be at least as tight as set out in Budget 2000.

The economy

1.26 The UK economy has experienced continued strong growth in output and employment combined with low inflation in 2000. The Pre-Budget Report forecast shows that:

GDP is expected to increase by 3 per cent in 2000 as a whole, in line with the Budget 2000 forecast, easing to its estimated sustainable rate of 21/4 to 23/4 per cent in 2001 and later years;
RPIX inflation is expected to rise gradually back to 21/2 per cent by mid-2001, remaining at the Government's target thereafter; and
short-term upside inflationary risks from stronger consumer demand and higher business investment are balanced by the possibility of continued favourable developments in costs and margins. However, the recent sharp increase in oil prices poses a significant risk to global prospects if sustained.

The public finances

1.27 The public finance projections published in this Pre-Budget Report, and summarised in Tables 2.4 and 2.5, provide an interim forecast update. They do not necessarily represent the fiscal outcome which the Government is seeking and they therefore have a quite different status from those published at the time of the Budget since the latter include the effects of all Budget policy decisions. In line with the Code for Fiscal Stability, the updated fiscal projections include the effects of all firm decisions announced in the Pre-Budget Report on individual taxes and programmes within Annually Managed Expenditure.

1.28 As noted above, the fiscal projections continue to be based on the deliberately prudent and cautious assumption of 21/4 per cent a year trend growth, as audited by the National Audit Office (NAO). Under the three-year rolling review of audited assumptions established in Budget 2000, the NAO has reviewed the assumptions for equity prices, price deflators and VAT receipts for this Pre-Budget Report and concluded that it is reasonable that the assumptions continue to be used.

1.29 A current budget surplus of £161/2 billion is now expected in 2000-01, around £21/2 billion higher than the Budget 2000 forecast. Much of this reflects stronger than expected receipts. This improvement in the current year is expected to persist across the projection period.

1.30 In making discretionary policy changes in the Pre-Budget Report, the Government has ensured that the fiscal rules will continue to be met over the economic cycle, including in the cautious case. The updated forecast takes account of policy announcements in the Pre-Budget Report, including additional support for pensioners of £21/2 billion a year by 2003-04 and a one year freeze in all fuel duties in cash terms in Budget 2001. These are summarised in Table B4. Consistent with the Code for Fiscal Stability, the forecast does not take account of measures proposed in the Pre-Budget Report for consultation in the run up to Budget 2001. Decisions on these measures will be taken in the Budget when the Government will also review its AME forecast and the AME margin. In line with the usual convention adopted in previous Pre-Budget Reports, changes to the forecast for AME programmes have been offset in the AME margin.

1.31 Taking account of the stronger than expected fiscal developments and the policy measures announced in the Pre-Budget Report, the fiscal stance is expected to be at least as tight as set out in Budget 2000 and the Government remains on track to meet its fiscal rules over the economic cycle, including in the cautious case.

MEETING THE PRODUCTIVITY CHALLENGE

1.32 Productivity in Britain lags behind that of other major economies. Raising productivity performance is the key to achieving sustained increases in the economy's growth potential and higher living standards. The Government has put in place a long-term strategy designed to meet this productivity challenge and bridge the productivity gap with Britain's major competitors.

Measures already announced

1.33 The Government's strategy focuses on five key drivers of productivity performance, and it has already introduced an extensive set of reforms spanning each of these areas. These include:

competition: to ensure vigorous domestic and international competition, greatly enhanced powers for the Office of Fair Trading under the new Competition Act and new measures to improve competition and services to customers in the banking industry;
enterprise and innovation: to develop a culture and incentives that promote enterprise and innovation in every region of Britain, major reforms to capital gains tax, permanent 40 per cent first year capital allowances for small and medium-sized enterprises, a new all-employee share ownership plan and R&D tax credit, and a greater regional focus on enterprise and regeneration through the Regional Development Agencies and the new Small Business Service;
skills: to provide a wide spread and high quality of skills in the workforce, substantial increases in education spending to raise standards in primary and secondary schools, measures to increase participation in higher education, the launch of individual learning accounts and learndirect to provide greater opportunities for life-long learning, and changes to the work permits system;
investment: to create the right conditions for investment, reductions in corporation tax rates, the abolition of advance corporation tax, a new 10p rate for the smallest companies, and a review of whether there are factors discouraging institutional investors from investing in smaller companies; and
public sector productivity: to deliver continuous improvements in the productivity of the public sector, output and efficiency targets for public service delivery through Public Service Agreements, the Public Services Productivity Panel, the new Office of Government Commerce to bring about a step change in public procurement practice, and Partnerships UK to help the public sector build more effective, value for money partnerships with the private sector.

Next steps

1.34 The Pre-Budget Report outlines the next steps in the Government's programme of reforms to increase Britain's productivity performance:

a package of measures from April 2001 to help small and medium-sized firms manage their entry into the VAT system, reduce their administrative burden and improve their cashflow;
extending, subject to consultation, the benefit of the business assets rate of taper relief in capital gains tax to employee shareholdings in a range of non-trading companies;
consultation on ways to expand Enterprise Management Incentives so that small businesses can make more flexible use of the benefits in a way best suited to their needs;
consultation on the Social Investment Taskforce's proposals for a Community Investment Tax Credit, and working closely with the venture capital industry and others on setting up the first Community Development Venture Fund, both to stimulate more private investment in under-invested communities;
significantly increased freedom for the Regional Development Agencies from next year, enabling them to target resources more effectively - as a major step towards their strengthened role and additional resources and flexibility from April 2002 announced as part of the 2000 Spending Review; and
an independent review of the management of the radio spectrum to advise on the principles which should govern spectrum management and what more needs to be done to ensure that all users are focused on using their spectrum in the most efficient way possible.

INCREASING EMPLOYMENT OPPORTUNITY FOR ALL

1.35 The Government is working to deliver employment opportunity for all - the modern definition of full employment. Expanding the effective supply of labour will allow the economy to grow more rapidly without running into skills shortages and creating inflationary pressures. By providing employment opportunities for all, the Government is also tackling a key underlying cause of deprivation and helping to break the inter-generational cycle of poverty.

Measures already announced

1.36 The Government's strategy is based on helping people to move from welfare to work, easing the transition to work, making work pay and securing progression once in work. The Government has already introduced radical reforms of the tax and benefit system backed up by active labour market policies:

welfare to work: with New Deal programmes for 18-24 year olds, 25+, the over- 50s, lone parents, people with disabilities and partners of the unemployed. Action Teams and Employment Zones are tackling the problems of worklessness in the most disadvantaged areas;
easing the transition to work: with a new Job Grant of £100 from spring 2001, a four-week Income Support for Mortgage Interest run-on and simplified rules for the Housing Benefit Extended Payments Scheme, and increased provision of childcare facilities under the National Childcare Strategy; and
making work pay: with the Working Families' Tax Credit, reform of NICs, a new 10p rate of income tax from April 1999 and a cut in the basic rate to 22p from April 2000. This is underpinned by the National Minimum Wage, the adult rate of which was increased to £3.70 an hour from October 2000.

Next steps

1.37 As a result of the 2000 Spending Review and the Pre-Budget Report, the Government is taking further steps to promote work:

an extension of the New Deal for lone parents starting from autumn 2001 to provide help and support to all lone parents on Income Support who are not working, or who are working less than 16 hours a week;
a new Job Transition Service to provide extra help to areas affected by large-scale redundancies, building on existing provision to help people into new jobs; and
as confirmed in the 2000 Spending Review, the New Deal 25+ will be extended and intensified from April 2001, on a national basis.
In addition, the Government will continue to work on the detailed design issues of the employment tax credit to be introduced from 2003.

FAIRNESS FOR FAMILIES AND COMMUNITIES

1.38 At the same time as increasing the overall prosperity of the nation, the Government is working to build a fairer and more inclusive society. In particular, the Government is tackling child poverty, helping pensioners, rewarding saving, investing in public services and ensuring a fair tax system.

Measures already announced

1.39 The Government has already introduced a wide range of measures to ensure fairness for families and communities, including:

support for families and children: through significant increases in Child Benefit, the introduction and subsequent increases in the Working Families' Tax Credit, the introduction of the Children's Tax Credit from April 2001, targeted support for low-income parents in the early months following the birth of their child and a new Children's Fund set up as part of the 2000 Spending Review;
fairness for pensioners: through the Minimum Income Guarantee uprated by earnings for the poorest pensioners, an annual winter fuel payment of £150 for every 60+ household and concessionary TV licences for those aged 75 and over; and
delivering strong and dependable public services: through substantial additional resources for Britain's frontline public services over the next three years in the 2000 Spending Review, including average annual real growth of 5.4 per cent for education and 5.6 per cent for health.

Next steps

1.40 Building on what has already been achieved, the Pre-Budget Report takes further steps towards a fairer society. These include:

further measures to help raise the standards in schools with £5 million to help establish the National e-Learning Foundation and a £200 million investment to be paid directly to schools in 2000-01 to provide further help to tackle repairs;
a major package of measures to boost pensioner incomes, in advance of the introduction of the Pension Credit in 2003 which will deliver substantial gains to all pensioners on low and modest incomes:
increasing the winter fuel payment, which is set at £150 for future years, to £200 this winter. So this winter, 8.5 million pensioner households will be eligible for a payment of £200 - almost £4 a week - double the amount of last year's payment;
increasing the basic state pension by £5 to £72.50 a week in April 2001, and by a further £3 to £75.50 a week in April 2002 for single pensioners. For couples this will mean an increase of £8 to £115.90 a week in April 2001, and of a further £4.80 to £120.70 a week in April 2002; and
increasing the lower rates of the MIG to equal its highest rate, raise this by earnings, and further, by the real increase in the basic state pension, so that all pensioners gain fully from the increase in the basic state pension. From April 2001, the new, simplified MIG will be £92.15 a week for single pensioners, and £140.55 a week for couples.
a £200 million a year package of measures helping disabled people and carers, to be announced by the Secretary of State for Social Security in the coming days;
abolition of the £500 capital limits in the Sure Start Maternity Grant and Funeral Payments by October 2001, providing additional help for families on low incomes to cover the costs associated with the birth of a baby or the death of a close relative;
retaining the current £7,000 Individual Savings Account (ISA) annual contribution limit (and the associated £3,000 cash limit) for a further five years until April 2006, rather than reducing it to £5,000 (£1,000 cash) in April 2001 as previously planned, and making cash ISAs available to 16 and 17 year-olds for the first time in April 2001; and
further discussions about modernising General Betting Duty, with a view to an announcement at the time of Budget 2001.

PROTECTING THE ENVIRONMENT

1.41 Economic growth must take place in a way which protects and, where possible, enhances the environment. The Government has therefore developed a clear framework to take account of the environmental impact of economic growth, focusing on tackling climate change and improving air quality, regenerating Britain's cities and protecting the countryside.

Measures already announced

1.42 The Government has already taken significant steps to deliver its environmental objectives:

climate change and air quality: the climate change levy to be introduced in April 2001 to encourage more efficient business use of energy, reforms to VED and company car tax, a reduction in the duty on ultra-low sulphur petrol relative to unleaded from October 2000 and substantial additional investment in transport under the new Ten Year Transport Plan; and
regenerating Britain's cities and protecting the countryside: new stamp duty relief for some Registered Social Landlords to encourage social housing provision and make better use of the existing housing stock, continuing annual increases in the standard rate of landfill tax, a new aggregates levy from April 2002 to tackle the environmental costs of quarrying and continuing work to reduce the environmental impact of pesticides use.
Transport

1.43 The Pre-Budget Report introduces a package of targeted measures which, consistent with the Government's environmental principles, will help motorists and improve the competitiveness of the UK transport sector while protecting the environment in the longer term. It includes specific help for farmers, and will encourage the modernisation of the road haulage sector in an environmentally-friendly way.

1.44 Taking account of the strength of world oil prices, and the measures being taken to tackle climate change, the Government has decided to freeze all fuel duties in cash terms in Budget 2001. This will lower taxes on petrol and diesel by around 11/2 pence per litre in real terms, at a total cost of around £560 million in 2001-02.

1.45 Subject to consultation in each case on the details and the environmental merits, the Government also intends to:

cut the duty on ultra low sulphur petrol (ULSP) and widen its differential with standard unleaded petrol by a further 2 pence per litre in Budget 2001, on top of the 1 penny per litre reduction which came into effect on 1 October 2000. This would be conditional on the oil companies guaranteeing nationwide access to its environmental benefits. In these circumstances, the duty on ULSP would therefore have been cut by a total of 3 pence per litre since Budget 2000;
subject to the cut in ULSP discussed above, cut the duty on ultra low sulphur diesel by 3 pence per litre in Budget 2001 to maintain the existing balance between duty rates on the most commonly available petrol and diesel;
remove the 2 pence per litre duty premium on lead-replacement petrol;
invite British industry to develop proposals for practical alternative fuels. Following consideration of these proposals, the Chancellor will announce major reductions in duty rates for the most promising environmentally-friendly alternative fuels;
a further extension of the "small car" engine capacity threshold in vehicle excise duty (VED) to existing cars with engines up to 1,500cc, cutting VED for a further 5 million car owners;
reform the system for lorry VED in Budget 2001 to reflect better the environment and track costs of different lorries. The reform is intended to reduce the cost of VED on lorries for British industry by around £300 million a year (equivalent to over 50 per cent);
as a transitional arrangement, a rebate in lorry VED fees in the current year meaning cuts of 50 per cent for many of the largest vehicles, worth up to £4,000 each;
introduce a "vignette" or "user charge" scheme for lorries so that foreign hauliers start to contribute towards the costs of maintaining the UK road network and the environmental costs that they impose;
set up a £100 million ring-fenced fund to offer further incentives or allowances for scrapping older, more-polluting lorries or encouraging cleaner lorries and technology to secure environmental benefits and help the haulage industry modernise;
help to improve the quality of training, especially for small haulage firms, working with the Road Haulage Forum which has already initiated a review of this area; and
abolish VED for tractors, saving farmers in total over £9 million a year, or £40 for every agricultural vehicle.

1.46 In total, these proposed measures would cost up to £13/4 billion a year, in addition to the cost of the freeze in duties. If all the measures which the Government is announcing and consulting on in the Pre-Budget Report are implemented then the tax on motorists will fall by the equivalent of about 4 pence per litre in real terms. Together with the reduction in ultra low sulphur diesel proposed and the freeze in fuel duties, the measures in the Pre-Budget Report would represent a reduction for freight transport of around £750 million a year in real terms, equivalent to a reduction of about 8 pence per litre for diesel used in road haulage.

Next steps

1.47 The Pre-Budget Report also sets out other steps to protect and improve the environment:

a £1 billion cumulative package of tax measures over five years to help regenerate Britain's towns and cities, including:
a complete exemption from stamp duty for all property transactions in Britain's most disadvantaged communities from April 2001;
the intention to introduce an accelerated payable tax credit for the costs incurred in cleaning up contaminated land;
immediate tax relief to property owners for the costs of converting redundant space over shops and other commercial premises into flats for letting; and
a reduced rate of VAT for the services of converting residential properties into a different number of dwellings, for example, houses into flats, and an adjustment to the zero rate of VAT to provide relief for the renovation and sale of homes that have been empty for more than 10 years;
a new £35 million aggregates Sustainability Fund to deliver environmental benefits to the areas subject to the environmental costs of quarrying;
and building on the £30 million announced in the 2000 Spending Review to provide a financial incentive for firms to take on binding emissions reduction targets, consultation on outline proposals and options for the basic rules of the Emissions Trading Scheme.

Environmental appraisal

1.48 Table 6.1 shows how environmental tax measures fit in to the overall framework of the Government's environmental policy. An environmental assessment of these measures is detailed in Table 6.2.

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Chart 1-1: Government spending by function

GOVERNMENT SPENDING AND REVENUES

1.49 Chart 1.1 presents public spending by main function. Total public spending (Total Managed Expenditure - TME) is expected to be around £372 billion in the current financial year, 2000-01. TME is divided into Departmental Expenditure Limits, shown in Table B14, and Annually Managed Expenditure, shown in Table B17. A number of DELs, in particular those of the devolved administrations, contribute to spending on more than one function. Chart 1.1 includes spending by local authorities, rather than the grants they receive from central government which are included in Tables B14 and B17.

1.50 Chart 1.2 shows the sources of government revenue. In total, public sector current receipts are expected to be around £380 billion in 2000-01. Table B11 in Annex B provides a more detailed breakdown of receipts consistent with the above chart.

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Chart 1-2: Government receipts

Internal links

Pre-Budget Report 2000 index